UK Corporation Tax and Non-Resident Directors

Corporation tax

Corporate tax in the UK currently stands at 19%. The government has announced a commitment to further reduce corporation tax to 17% by 2020.

All companies must submit annual accounts compliant with UK GAAP to Companies House by nine months following the company’s financial year end. A company’s year-end is set by default as 12 months following the end of the month in which the company was incorporated and not necessarily the end of the Gregorian calendar. A company may choose to change its year end to December if it wishes.

Corporation tax must be paid by nine months and a day after the company’s accounting period for corporation tax. Large companies with annual profits above £1.5 million must pay tax quarterly.

Non-Resident Directors of UK companies

It has been the UK position that non-residents are not assessable under the UK tax system and as such not required to submit an annual declaration of income (Self-Assessment Tax Return) or register on a PAYE (Pay-As-You-Earn) scheme for employees living and working outside the UK. Therefore, a non-resident director of a UK company extracts profits by way or salary or dividend with no UK reporting requirement on those drawings so long as they are earned outside the UK.

Notwithstanding, it is HMRC’s common practice to request directors of UK-registered companies to submit a personal tax return, in which case there will be a statutory legal obligation to submit a return (SA100). No liability will arise in respect of earnings which relate to duties performed overseas.

Earnings which relate to duties performed in the UK in a tax year are taxable in full unless they are exempt from UK tax under the terms of a Double Taxation Arrangement.

Most UK-residents qualify for the full personal allowance unless their income is above £100,000, triggering the personal allowance cap. The personal allowance is a 0% tax rate on income up to £11,500. Non-residents do not qualify for the allowance unless they are nationals of the European Economic Area or a state with which the UK has signed a Double Taxation Treaty containing a non-discrimination clause that entitles the taxpayer to the UK tax-free personal allowance. In effect, in many instances a non-resident director will be able to earn a salary on his UK performed duties up to £11,500 with zero tax to pay.

Non-domiciled

A UK resident taxpayer who is non-domiciled in the UK and is opting to tax on a remittance basis can claim relief in respect of earnings from duties carried out overseas if these earnings are not remitted to the UK. This is known as “Overseas Workday Relief” and is subject to certain criteria.